How a Realtor Makes Home Buying Easier
Buying a home is one of the most significant financial decisions you’ll ever make, but the process...
You are ready to apply for a home loan and make your dreams a reality. You have a great job, little debt, and a wonderful future ahead of you. Perhaps your credit score is not great, or maybe you have not built much credit, but you can afford the mortgage. How important is the credit score anyway? According to several major lenders, your credit score is more important than ever. Lenders have a common goal to make sure the prospect they are lending money to is going to have a secure income and a history of proven credit.
What do lenders want?
Your hefty, hard earned paycheck may not be enough to woo your lender, but your ability to pay your mortgage is obviously important to them. Your chances of getting bankrolled have other determining factors that lenders will weigh out when considering your request. Debt to income ratio, total length of your credit history, low balances, and a good mix of credit utilization will likely be considered by companies when you apply. The level of importance of these auxiliary factors may differ from lender to lender resulting in a variance in your loan offers and rates. Past due balance, bankruptcy, and foreclosures can have a major negative impact on your ability to secure your home loan.
How Good is Good Enough?
Interest rate and mortgage are determined based on credit score. A higher score is definitely a benefit when it comes to getting a lower percentage rate and thus a lower monthly payment. Let's take a look at this breakdown of estimated interest rate and monthly mortgage payment according to the Fair Isaac Corporation, the inventors of the FICO score.
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Mortgage rate estimates as of September, 2016:
|
760-850 |
3.113% |
|
700-759 |
3.335% |
|
680-699 |
3.512% |
|
660-679 |
3.726% |
|
640-659 |
4.156% |
|
620-639 |
4.702% |
Credit makeover
Cleaning up your credit starts with obtaining a free credit report, along with checking and correcting any discrepancies. Make a plan to pay off large balances and try to bring your balances down to below 30% of your credit limit. If you are trying to build credit, apply for secured cards or cards with low interest rates and always keep balances low in comparison to limits while paying on time. Achieving excellent credit may require you to put your home dreams on hold, but the payoff can be worth thousands of dollars in savings. Check out this mortgage calculator to see how much you could save by raising your score.
The amount of time it will take to make your credit appealing enough to swoon your lender into an attractive offer could be months or years, but the savings may be well worth the wait.
Sources: www.myfico.com, www.wellsfargo.com, www.capitalone.com
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Articles, Home Values, Credit & Mortgage, Buying a Home, The buying journey, Featured, Loans, Mortgages
